Taking Private Public

The value and commitment of establishing store brand products.

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Americans love to shop—they love to eat and they love to be active. What’s more, they love to save money. And more and more consumers are devoting themselves to store brands (private label) than ever before, in order to achieve and sustain all of these desires.

According to recent research from New York, NY-based Private Label Manufacturers Association (PLMA), overall, retailer brand product sales reached a little more than $118 billion in 2015, a figure deemed an all-time record, and reflecting an increase of $2.2 billion over the previous year (1). “Private Label Yearbook,” PLMA’s 2016 annual report, states that annual sales of store brand products in major retail channels are up more than 5%, (ie., $5.4 billion) in the past two years (1).

According to the report which cites a study by the National Bureau of Economic Research, as a group, American consumers could save an estimated $44 billion per year by buying store brand products over national brands. “Store brands are not cheaper—they are just less expensive to market than national brands,” emphasized Brian Sharoff, president of the PLMA. “And that’s good news for consumers.”

Karl S. Halpert, president & CEO of Private Label Select, Taos, NM, observed, “We have a surging mass market growing its private label categories.” For example, he offered, Whole Foods Market logged in approximately 4,400 SKUs in 2016 (according to Motley Fool.) “Also, consider the fact that Walmart’s Great Value and Equate store brand sales dwarf many branded lines,” he underscored; so private label as a store brand can indeed be powerful.

In the past, private label offerings were often limited to the basics, but today there is a much broader range of options encompassing all the popular product categories, including condition-specific formulas.
—Regina Flight, NOW Foods

According to Halpert, profit margins are as much as 25% higher than that of the branded lines, while private label brands build additional value for the retailer in brand equity. And they’re moving into the private label organic space, he said, with prices as much as 25% below counterpart organic brands.

When it comes to store brands/private labels, as a famous brand used to proclaim, “You’ve come a long way.”  It wasn’t too long ago when retailers carrying private label products had to contend with or figure out how to bypass the stigma attached to them—that they were lower in quality than their branded counterpart. Private label products were once considered generic.” This is, as we have seen, no longer the case.

In fact, depending on how well a retailer manages its brand in its community and on social media, its own line may actually be considered superior. This is not impossible.
Halpert declares, “In the natural products marketplace, retail brands such as Whole Foods Market immediately convey high quality, natural, ‘clean’, ethically and environmentally produced products even when such is not the case.”

Regina Flight, NOW/HealthCO, Private Label/Bulk Supervisor, Bloomingdale, IL, recalled, “In the past, private label offerings were often limited to the basics, but today there is a much broader range of options encompassing all the popular product categories, including condition-specific formulas. Similarly, labels and packaging often look much more professional today.”

She added that natural products (and all) retailers have more tools today to promote their store brands, from online newsletters to social media. To gain a healthy and sustainable competitive edge, she said, “private labeling is a proven way to increase consumer awareness.”

Sharoff believes that successful naturals brands are stores such as “Sprouts, Fresh Thyme, Fresh Market and Whole Foods Market, for example, which have done very well in bringing innovation to their assortments. In our recent Salute to Excellence Awards, Fresh Thyme’s Veggie Sticks won in the chips and crisps category, for example. Whole Foods Market’s 365 Chocolate Syrup won in the organic foods category. These are typical of the innovative products to be found in the evolution of private label in natural foods.”

And mass market is thriving here as well. This reflects overall consumer desire and habit to combine quality with value, and even a touch of exclusivity—“I’m using a unique brand not found anywhere else!”

Halpert pointed out that private labeling has become so strong among the retail giants that trade publications such as Brand Packaging’s July 2015 cover story features strategies for branded lines to “compete” with store brands and justify their pricing premiums. Private labeled store brand products have come to be perceived as a high consumer value in the natural products industry.

Citing research from JP Morgan, Halpert related, “Kroger is about to surpass Whole Foods Market as the nation’s largest retailer of organic goods with sales of $1.2 billion from 33,000 products.” Kroger’s shoppers are familiar with its private label brand, Simple Truth, which has grown to become a $1 billion-per-year behemoth private label line.

Another one that many consumers are familiar with, Kirkland Signature, from Costco Wholesale, racked up total organic sales close to $3 billion. And these supermarket store brands are savvy, on trend and on point and respond quickly to emerging consumer demands. For example, Ahold USA’s “Nature’s Promise” store brand announced in February of this year that it was going to add “Free from” food and household product choices in its Giant Food stores, which offer more than 800 store brand products.

Perusing shelves in mass and other large retailers that are heavily invested in private label will yield the fact that not every product (or size, or breadth and depth) has a store-brand counterpart. Both GNC and Vitamin Shoppe are examples of two of the industry’s most successful private label retailers that also sell major (and boutique) brand counterparts.

“In the natural products industry, the private label supplement brands do follow national trends,” observed Flight. “Demand is for antioxidants, joint formulas, and other condition-specific products. When products are popular with consumers they’re going to look for them across the board, in both national and store brands.”

Trends in private label include healthy convenient snacks, such as trail mixes and bars. According to a Packaged Facts report, “Healthy Ingredient Snacks in the U.S., 2nd Edition,”
retailers are adding an increased number of what they consider “healthy” snacks to their store brand inventory, and they are also increasing marketing and promo spends to lure consumers into purchasing them (2). Packaged Facts noted that many of these healthy snacks wrapped in store brand packaging are on trend, reflecting the growing desire for “Free from” such as allergens, additives and gluten; being bite-size, convenient and in unique flavor combinations.

“High-velocity products are certainly a good way to introduce private label but boutique categories can also be very successful,” attested Sharoff. “The question is how to get customers to become aware of private label. The answer often lies with in-store promotion, shelf positioning, and knowledgeable store personnel more than whether the products are high-turnover.”

Therefore, in this modern retail environment, for those retailers who want to make the leap into store brand products, strategized promotions and marketing will make a dramatic impact on sales.

Your store brand is a powerful way to create store loyalty, especially if the product is of the highest quality. The advantages include increased margins over nationally branded lines, and perhaps most importantly, the equity in your store brand itself.
— Karl S. Halpert, Private Label Select

However, as with any national brand, remember that your chosen private label partner(s) also must adhere to regulations and strict quality control. PLS, according to Halpert, operates under the guidelines of the FDA’s Good Manufacturing Practice (GMP) and its facilities are audited by the FDA as well as several of its own customers. The manufacturer is also certified by the NOP organic standard and the ANSI NSF-305 organic standard, both of which require annual third-party audits.

“These standards require that we have a robust Quality Management System in place,” he explained. All incoming raw materials are quarantined until they are positively identified and their purity is established. This is accomplished through a number of tests, including submission to an infrared analysis of the material profile. Each product has established standards for texture, color, viscosity, flavor profiles, batch yields etc., and all finished goods are tested for conformity to these established standards. Each product’s manufacturing process has been validated through trial runs prior to going into production. All procedures, including cleaning, have been validated and any changes must be executed through a Change Control.

“Potential customers must ask their suppliers for this kind of detail prior to entering into a manufacturing relationship with the factory,” he advises. “Any hesitation on the supplier’s part, or vague answers that do not reference GMPs or ISO-types of certifications should serve as red flags.”

Private label manufacturers are sophisticated, as well, with the ability to deliver products that will satisfy the most discerning of customers. For example, Reliance Vitamin of Edison, NJ operates in a state-of-the-art eco-friendly (LEED compliant), 90,000-square-foot facility that contains Class 10,000 Clean Rooms, which exceed industry standards for air quality and moisture control, necessary for certain environmentally finicky ingredients.

For a retailer’s own label, NOW Foods, explains Flight, offers a variety of attractive stock designs to choose from. “We can get retailers up and running very quickly using any of these, or they can choose to create their own design. Either way, the results will look professional and attractive.  We can easily add a store’s image to the label design. Customers can send in their own artwork using Illustrator or PhotoShop, so it’s pretty straightforward for them.”
Sharoff suggests keeping the packaging in mind. “One of the reasons store brands have grown is the recognition of the importance of functional and attractive packaging. This means not only how the package looks but also how it opens, closes, and how it sits (presents) on a shelf, pantry, tabletop or refrigerator.”

Beyond attractive graphics upon which retailers can build a compelling marketing campaign, there are other key considerations to ensuring your private label brand not only penetrates community members’ consciousness but is an active part of their lives.

Halpert explains, “Your store brand is a powerful way to create store loyalty, especially if the product is of the highest quality. The advantages include increased margins over nationally branded lines, and perhaps most importantly, the equity in your store brand itself. It is imperative that the retailer not offer a store brand that is inferior to the equivalent branded lines. In many cases a National Brand Equivalent (NBE) is successful, as the customer is already educated about the benefits of the product.”

The customer base may also very well be shifting, as generations grow up and continue to define how they want to live their lives and how brands and retailers can assist them in doing so.

According to PLMA research, Millennials are more loyal to their favorite stores than their parents are. Nine of 10 do their regular grocery shopping in only one or two stores. This represents a dramatic departure from recent PLMA studies that saw consumers spreading their shopping among a multiplicity of stores.

This loyalty has important implications for store brands. As they select products, Millennials are well informed about brands, including store brands, and where foods come from.  90% say they are aware of the ingredients in the food products they eat, and three of four read the nutritional labels on products. Their awareness of store brands and national brands is virtually the same at 84% vs. 86%.

Sharoff says, “Store brands remain the retailer’s most potent weapon in developing strategies for this age group. It offers flexibility and opportunities to be creative with product assortment and concept without waiting for national brands.  But it requires an understanding of what this age group likes and will buy.”

In her article, “Two Diverse Generations,” author Susan Viamari, Editor for IRI, points out the key differences between Millennials and Generation Z, and how retailers can succeed in selling store brands to these generations.

It is widely accepted and understood that both these generations are exceedingly tech savvy, and are continuously engaged with digital technology, which is hallmarked by instantaneous gratification, an expectation that translates to convenience.  She also cites in her article that approximately 40% of individuals between 18 and 34 years old are always seeking new foods that provide convenience of consumption. She writes, “Younger shoppers are looking for protein in areas where protein was not even a consideration a few years ago— 22% of 18 to 34-year-olds look for new beverages that offer protein, compared to just 7% among those over age 55.”

Within these younger generations Viamari describes are core groupings defined as:  New Traditionalists, who gravitate to products with cause-related messaging, Conscious Naturalists, who prefer to spend on USA-made and eco-friendly/sustainable foods and products, and Free Spirits, who will spend more on trendsetting “cool” products.
Sharoff adds, “Remember, a customer can buy a national brand anywhere but can only buy your store brands in your store. Of course, that puts a heavy responsibility on the shoulders of the retailer who must make sure to give their store brands the quality, packaging, assortment and commitment that customers will expect.”

Customer expectations are embedded in the brand experience. Remember, a brand is the perception your customers hold about your store—your products, your selection, your service, your staff’s demeanor, your marketing and advertising, and the physical environment, including the visual identity envelope (packaging, signage, etc.).

Private label, underscores Flight, provides retailers the opportunity to brand their store’s image, which is a proven way to attract and retain long-term business. “When customers become used to buying a particular store brand, it reinforces and expands their loyalty to that store. In addition to excellent customer service, it’s the best way to keep the customers coming back. Remember, they can’t get your store brand products from any other retailer. Further, retailers are not just limited to selling their brand at the retail level, they can sell it online too.”

Creating a store brand is a sustained commitment and needs constant oversight and nourishment, as well as management of expectations. It can dramatically enhance your presence in your community, where you can do sample programs at events, and perhaps work with a local naturopath or nutritionist who may be your spokesperson. Your own brand can pay numerous dividends for a long time, so go ahead if you’re not already—take “private” public! WF

References
1. “PLMA’s 2016 Private Label Yearbook: A Statistical Guide to Today’s Store Brands.” http://plma.com/share/press/resources/PLMA2016YB_COMB_RPT.pdf
2. “Growth of ‘healthy’ snacks outpacing that of the overall food, beverage market.” http://www.storebrands.info/research-and-data/store-brand-insights/consumer-insight/growth-healthy-snacks-outpacing-overall-food-beverage-market
3. S. Viamari. “Two Diverse Generations.” http://www.storebrands.info/research-and-data/store-brand-insights/consumer-insight/two-diverse-generations

Published in WholeFoods Magazine December 2016